Far-reaching Reforms of NHS Pension Scheme Ruled Out

Peter Russell

February 05, 2021

The Department of Health and Social Care (DHSC) has rejected calls by doctors and NHS leaders to offer clinicians more control over their pensions growth to manage their pension tax position.

It said proposed flexibilities were no longer needed because the Chancellor of the Exchequer's decision to raise the income threshold for annual allowance tapering from £110,000 to £200,000 from April 2020 was sufficient to ensure higher paid health professionals were not penalised.

Response to Consultation

In 2020, the Government launched a consultation on proposals to make the NHS pension scheme in England and Wales more flexible. The consultation came after some higher-earning doctors refused work to escape punitive tax bills triggered once their pension pots exceeded tax-free allowances caused by the taper.

Of the 2264 responses received, most were from individual doctors and senior clinical staff, but also included trade unions, NHS trusts, foundation trusts and medical accountancy firms. Most of the respondents took the view that providing flexibility was no substitute for tax reform.

Many respondents said that the complexity of the taper prevented scheme members from making informed decisions about their pension benefits, with the British Medical Association complaining that the taper mechanism was "beyond the comprehension of the most experienced accountants and tax advisors".

On Wednesday, the DHSC published its response to the consultation process. It said: "The Government's review concluded that raising the thresholds was the quickest and most effective way to solve the issue and delivers a tax solution which was preferred by most consultation respondents as a simpler alternative to flexibility that many feared would add to the complexity of the pension scheme. As a consequence, the department does not intend to proceed with proposals to introduce pension scheme flexibility for senior clinicians.

The document said that its calculations suggested that raising the threshold income to £200,000 would take an estimated 98% of consultants and up to 96% of GPs out of scope of the taper.

However, the DHSC said it would work with the pension scheme administrators to improve transparency.

Staff Retention

Responding to the announcement that ministers would not be taking the matter forward, Dr Vishal Sharma, BMA pensions committee chair, said: "The complex NHS pension system and its punitive taxation arrangements are key reasons behind the medical recruitment and retention crisis, and it is vital that there is real reform, including the scrapping of the annual allowance in defined benefit schemes, to ensure fairness and to allow doctors and other healthcare workers to remain in the profession treating patients."

Chris Hopson, chief executive of NHS Providers, said NHS pension policy was a complex area and more time was needed "to understand and consult with trusts regarding the full impact and current effect of pension taxation in the NHS".

He added: "The NHS workforce has been placed under strain like never before during this pandemic and so it is all the more important that we do everything we can to ensure our hardworking staff feel supported by the Government at this time.

"This will be vital if we want to retain our most senior clinicians in the years to come."

NHS Employers said that the outcome of the consultation highlighted "the importance of continuing to help staff to understand the value of the NHS pension scheme and their potential annual allowance position".

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